Coles Surges to Two-Year High as Annual Profit Beats Expectations
In a surprising turn of events, Australian grocer Coles has reported annual profit that exceeded expectations, driven by strong supermarket sales and improved inventory control measures to combat theft-related losses. This has resulted in the company's shares reaching a two-year high.
Coles has managed to strengthen its competitive position by offering private-label products and increasing e-commerce sales. Additionally, a more stable pricing environment due to moderate inflation has attracted price-sensitive customers, further boosting the company's performance.
Following the positive news, shares in the Australian supermarket operator surged by 2.4%, reaching a high of A$19.050, the highest since August 2022. The benchmark also saw an increase of up to 0.3%.
The grocer reported a 2.1% rise in net profit after tax, surpassing the Visible Alpha consensus estimate. However, E&P Capital retail analyst Phillip Kimber cautioned that softer start to FY25 and higher transformation costs may lead to minor downgrades in future estimates.
Coles also highlighted a trend of moderating dairy inflation and fewer supplier price hikes, which have allowed for more stable pricing despite rising commodity costs. Revenue from supermarket sales rose by 4.3% to A$39.04 billion, with a 3.7% increase in sales in the first eight weeks of fiscal 2025.
Despite a 9.4% jump in capital expenditure in FY24, mainly due to increased investments in store renewals and stock loss technology, Coles plans to invest A$1.2 billion in capital expenditure in fiscal 2025, with more store openings planned.
In a move that will please investors, the Melbourne-based retailer declared a final dividend of 32 Australian cents per share, up from 30 cents in the previous year.
Analysis:
Coles' strong performance in the past year, driven by robust sales and cost control measures, has led to an increase in profits and share price. The company's focus on private-label offerings and e-commerce sales has proven successful in attracting customers. Despite challenges such as rising commodity costs, Coles has managed to maintain stable pricing, which has contributed to its overall growth. Investors can look forward to potential returns from the company's continued investments and strategic initiatives.